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You need to setup php to handle email otherwise users will not get email Right now as it stands I cant upload since I will never be able to confirm the account I created.
If your file was above 2mb yes that file will not get processed by a default php install. The error is from php and not the program. The program can only tell ya an error if you set a limit otherwise it look like the file has processed.
PHP by default has a 2mb upload limit and if you dont tell Photopost the filesize limit is 2048 then basically your saying any error reporting is handled by PHP. Well PHP is not real good at error reporting
Now go ahead make my account confirmed so I can upload a file. If its not allowing files below 2MB then we may need to see what else is wrong. One suggestion I can give is also make sure to use a newer version of ImageMagick as the one your using is a couple years old.